FHA mortgage fraud case pits DOJ against Wells Fargo

A lawsuit filed by prosecutors this past Tuesday in federal court in Manhattan, New York, pits the U.S. Department of Justice (DOJ) against one of the nation’s premier banks in a mortgage fraud dispute with a strong I say-you say tinge.

Wells Fargo is the defendant in the case, with the complaint alleging that the bank “engaged in a long standing and reckless trifecta of deficient training, deficient underwriting and deficient disclosure” relating to its home loans made to many moderate and low-income borrowers.

The crux of the government’s case is that the bank loans in more than 6,000 cases contained problems that Wells Fargo failed to disclose to the Federal Housing Administration (FHA). That agency works with banks by insuring them for the loans they make that enable many would-be homeowners to get into homes. In the event that a borrower defaults on a loan, the FHA reimburses the bank for its losses.

The FHA states that Wells Fargo essentially rigged the game by underplaying serious problems with many of the loans, which resulted in taxpayers ultimately picking up the tab. Government attorneys contend that many of the loans simply should never have been made.

As with all litigation, there are two sides to a matter under dispute, and Wells Fargo is not passively responding to the government’s charges. In an official statement made concerning the lawsuit, the bank stated that it will “vigorously defend itself” against the charges, noting that it is both the leading FHA lender and that its FHA delinquency rates are far below the industry average.

Source: Huffington Post, “Wells Fargo lawsuit: U.S. sues bank alleging civil mortgage fraud,” Ben Hallman, Oct. 9, 2012

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